Hud Risk Sharing Agreement

Recommendation: The Minister of Housing and Urban Development should prioritize the establishment of a comprehensive monitoring system to ensure that HUD`s risk-sharing partners comply with the procedures, rules or risk-sharing agreements of demonstration programs, including timely reporting requirements on the status of insured credits. Recommendation: To ensure that risk-sharing program managers have consistent and reliable data to meet their legal and regulatory obligations, the Minister of Housing and Urban Development should take action to address the current deficiencies in the information systems that support the programs. Summary: Section 542 (c) allows the U.S. Department of Housing and Urban Development (HUD) and public and local housing finance agencies (HFA) to propose new risk-sharing agreements to help these agencies provide more insurance and credit for multi-family loans. Comments: HUD examined the feasibility of amending its current risk-sharing agreement by allowing Freddie Mac to use reinsurance with 18-year-old balloon mortgages and (2) to amend both the risk-sharing agreements between Fannie Mae and Von Freddie Mac to allow the use of reinsurance with credit pools. Freddie Mac applied for permission for a 10-year balloon mortgage instead of an 18-year mortgage. HUD is considering this proposal, but has reservations about lowering mortgages on balloons for well under 18 years. Since neither GSE is interested in reinsurance of credit pools, no risk-sharing agreement has been amended to reflect this provision. The GAO found that (1) the credit enhancement program was implemented at the same time as the reinsurance program under the Housing and Community Development Act 1992 to facilitate the financing of affordable apartment buildings and to make this funding available in a timely manner; (2) the credit enhancement program meets these objectives; (3) As of September 1997, 32 public and local housing finance agencies had set aside about 84% of the risk-sharing units allocated to these agencies up to March 1996; (4) Most insured loans are the financing of real estate that serves more modest households than necessary, apparently because the increase in credit is used with other subsidies, including tax credits for low-income housing. (5) While it is still too early to assess the financial performance of insured loans, available financial indicators reflect sound insurance standards; (6) The activity of the reinsurance program has been sufficiently limited to ensure that the program remains largely new; (7) Only one institution, Fannie Mae, was fully involved in the program and one lender – Banc One Capital Funding Corporation – took out more than half of the loans that Fannie Mae resurred; (8) The activity of Banc One has shown that the risk-sharing reinsurance program can increase participation in mortgages, including the granting of small real estate loans in rural areas – an unsured capital need, as shown by HUD studies; (9) participation in demonstration programs has enabled HUD to facilitate the financing of affordable public housing while limiting exposure to risk-sharing losses; (10) Participation has also enabled HUD to increase efficiency and reduce the cost of its delegation operations compared to the Federal Housing Administration`s (FHA) traditional multi-family program; (11) HUD has retained responsibility for monitoring the performance of its partners from a risk-sharing perspective, but its data system to track the progress of credit enhancement projects is unreliable; (12) Hud is aware of the system`s problems and plans to address them as part of the review of all of its information management systems; (13) HUD has also retained the responsibility of ensuring that its partners meet the requirements of demonstration programs from a risk-sharing perspective; However, the GAO`s audit revealed a failure to